AP Summary

SEC Charges Hertz with Inaccurate Financial Reporting and Other Failures

Feb. 1, 2019

File No. 3-18965

February 1, 2019 - Hertz Global Holdings Inc. and its wholly-owned subsidiary The Hertz Corp. agreed to pay $16 million to settle fraud and other charges brought by the Securities and Exchange Commission stemming from multiple company filings containing inaccurate financial statements and disclosures.

According to the SEC's order, from February 2012 through March 2014, Hertz's public filings materially misstated pre-tax income because of accounting errors made in a number of business units over multiple reporting periods. In July 2015, Hertz restated its financial results for prior periods, identifying $235 million in previously reported pre-tax income based on treatment of items that was not consistent with generally accepted accounting principles (GAAP). The SEC's order finds that the inaccurate reporting occurred in a pressured corporate environment that placed improper emphasis on meeting internal budgets, business plans, and earnings estimates.

For example, according to the SEC's order, improper methodologies were used to determine allowances and write-offs for aged receivables. On several occasions, the methodologies were changed, always with a favorable impact on the financial statements. In one such instance in the fall of 2013, in the midst of severe budget pressure, the methodology was reworked so that some categories of receivables were reserved at an effective rate of 4%, implying a 96% recovery rate that was substantially above historical recovery rates.

In addition, the SEC's order finds that in November 2013, approximately five weeks after lowering its 2013 earnings guidance to $1.68-$1.78 per share, Hertz improperly reaffirmed that guidance, even though a more current internal analysis was projecting earnings per share of only $1.65, and another analysis had determined that the previously disclosed range was flawed in part as a result of methodological errors.

The SEC's order also finds that during 2013 Hertz failed to adequately disclose a decision to extend the planned holding periods for substantial portions of its U.S. rental car fleet, which beneficially impacted the company's financial statements in the short term by lowering the depreciation expense for current quarters, but also carried long-term risks including that older cars were likely to require increased maintenance costs, and could injure Hertz's premium brand.

Without admitting or denying the SEC's findings, the Hertz respondents consented to the SEC order, which was entered on December 31, 2018, finding that Hertz Global violated the antifraud provisions contained in Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933, and that both Hertz Global and The Hertz Corp. violated various reporting, books and records, and internal accounting controls violations of the Securities Exchange Act of 1934 and relevant rules thereunder. The SEC's order requires each Hertz respondent to cease and desist from further violations of the charged provisions, and requires Hertz Global to pay a $16 million penalty. The SEC's order acknowledges Hertz's cooperation in the investigation and its remedial acts.

The SEC's continuing investigation is being conducted by Jess Velona, Kenneth Byrne, Christopher Mele, and Adam Grace of the New York Regional Office, and is being supervised by Sanjay Wadhwa.

Last Reviewed or Updated: Feb. 1, 2019